Ged Carroll

Category: economics | 經濟學 | 경제학 | 経済

Economics or the dismal science was something I felt that I needed to include as it provides the context for business and consumption.

Prior to the 20th century, economics was the pursuit of gentleman scholars. The foundation of it is considered to be Adam Smith when he published is work An Inquiry into the Nature and Causes of the Wealth of Nations. Smith outlined one of the core tenets of classical economics: each individual is driven by self-interest and can exert only a negligible influence on prices. And it was the start of assumptions that economists model around that don’t mirror real life all the time.

What really is a rational decision maker? Do consumers always make rational decisions? Do they make decisions that maximise their economic benefit?

The problem is that they might do actions that are rational to them:

  • Reducing choice when they are overwhelmed
  • Looking for a little luxury to comfort them over time. Which was the sales of Cadbury chocolate and Revlon lipstick were known to rise in a recession
  • Luxury goods in general make little sense from a ration decision point of view until you realise the value of what they signal
  • Having a smartphone yet buying watches. Japanese consumers were known to still buy watches to show that they care about the time to employers when they could easily check their smartphone screen

All of which makes the subject area of high interest to me as a marketer. It also explains the amount of focus now being done by economists on the behavioural aspect of things.

  • Systeme D

    According to Foreign Policy, the D in Systeme D comes from the French word débrouillard which is used to describe people who are ingenious or resourceful. In the Francophone companies being resourceful means operating outside of proscribed government regulation and bootstrap entrepreneurship hence, systeme D. Back in France, this might have been applied to people smuggling in a new fangled personal computer into the workplace.

    Foreign Policy writer Robert Neuwirth argues that this grey economy exists across the developing world and has been driving economic activity from Chinese factories to African bazaars. Back when I was first visiting Hong Kong, there was a stream of west African business people travelling to Hong Kong. They would go to Chungkung Mansion. Buy a suitcase full of electronics (predominantly cellphones)  and then get a flight home. 

    There was then larger scale players based in Shenzhen and Guangzhou buying product. They then either supplied the merchants of Chungkung Mansions or shipped product home by the container load. Who knows what would happen with the customs in their destination country. Systeme D often relies on the kind of manufacturers relying on shanzhai style innovation. 

    Whilst this black economy would be seen as detrimental in developed countries due to it undermining a system that broadly works (look at the Greek government’s problems with non-payment of taxes). In developing countries where governments are less likely to be looking out for their citizens interests – so the black economy can be considered to be having partly a positive impact.

    The latest trend is that a lot of mainland Chinese people who have worked on infrastructure projects in Africa staying behind and becoming merchants, cutting African entrepreneurs out of the Systeme D model. There are well over a million of these Chinese entrepreneurs now doing business across sub Saharan Africa.

    More information

    The Shadow Superpower – By Robert Neuwirth | Foreign Policy

  • Dealer chic

    If the working class and the lower middle class are worried about financial security with trends like extreme couponing; the upper-middle classes are also interested in the thrill of a good deal with the changing economic environment a distant secondary motivator. With this in mind Trendwatching talked about dealer chic; reading their profile its almost as if they are thinking about their lifestyle in business terms. Looking for:

    • Increased efficiency – getting more for less – the buzz of a bargain
    • Value add – provided primarily through an improved experience

    Dealer chic is supposed to be caused by a move towards perfect markets – the use of reviews and comparative pricing facilitated by the web parallels the kind of techniques that procurement professionals would use. It also echoes the promise of disintermediation that web 1.0 was supposed to bring use with the first generation of shopping comparison sites in the late 1990s

    A more worrying by-product of the dealer chic trend is that brands are increasingly commoditised and access to mobile devices have accelerated the consumer buying process by providing them with the necessary research and the opportunity for instant gratification – potentially having a micro-chunking time effect on the timings and tweaking of pricing strategies.

    It means that luxury goods are seen as an asset class. This will mean an acceleration in price appreciation, but in order for luxury brands to benefit they will need to get involved in running pre-owned platforms. They can add value in validating each and every item, for a commission. 

    The space won’t be uncontested. You have established players from eBay and Yahoo! Auctions to Japanese retail brands like Brand-Off are already in this space. The Japanese have built up a formidable opportunity

    More information

    Trendwatching | dealer chic – find out more about dealer chic and sign up for Trendwatching’s free email newsletters

  • Extreme couponing

    Extreme couponing – is a phrase that I came across in the Knowledge@Wharton newsletter to describe the way hard-pressed value conscious consumers in North America are using offline vouchers and online resources including comparison shopping and coupon websites to make their grocery spend to go further. Having worked on FMCG programs rolled out in North America, the continued power of local newspaper and electronic coupons are famous.

    Coupons and extreme couponing were historically associated with thrifty older consumers who carried on family traditions developed during and post the great depression.

    Some US supermarket retailers built up a reputation for being ‘coupon friendly’ stores. But that might present its own problems. The average basket value might be much lower. Also the productivity of cashiers might be lower as they have to process all the coupons submitted. If the coupons aren’t valid for that supermarket that might result in a customer stand-off that needs to be resolved with the help of store management.

    The more astute of you may remember seeing coupon clipping and usage in historic episodes of Roseanne (what then become The Conners).

    Which begs the question what’s new that’s driving extreme couponing now? The answer seems to be a combination of food price inflation, low-to-no wage growth and an uncertain economy with high unemployment has led consumers to change their shopping. Pharmacy chains like Walgreens have benefited from business previously done as a one-stop shop in the supermarket since they will accept coupons for personal hygiene and cleaning products. The big issue is for the major brand companies like General Mills, Unilever and Procter & Gamble who are seeing brand loyalty eroded.

    Alongside an increase in coupon adoptions you are seeing bulk buying to hedge against inflation, rather than consumers trying to save the money itself in bank account. More retailing related content can be found here.

    More information

    Brand Disloyalty: Recession-weary Consumers Take Discounts to the Extreme

  • London conference on cyberspace

    The Foreign and Commonwealth Office of the British Government has always had the best online presence of all the different government departments, but I still find it interesting that it is they rather than the department of media and culture who are looking to lead a discussion on the future of the web and associated technologies. The FCO are hosting a conference on cyberspace in London on November 1-2, 2011 and are extending it online through social media platforms. I can’t help but feel the dialogue is aimed as much within the UK as internationally.

    Of course, the ironic thing is that the UK isn’t at all progressive in terms of all things internet related compared to the likes of South Korea, Singapore, Hong Kong, Australia, Iceland or Finland to name but a few countries. The Digital Economy Bill and actions done by the likes of Ed Vaizey have shown resistance rather than working out how it can benefit from the change. The music industry tried to fight the change and has torn itself apart so it will be interesting to see how that stance will work out. I look forward to following the conference on cyberspace; in cyberspace.

    Find out more here. More online related topics here.

  • Beyond The Crash by Gordon Brown

    On leaving office, Gordon Brown immediately spent a lot of time hammering out a book Beyond The Crash. Unlike Peter Mandelson this wasn’t the Westminster equivalent of a sordid kiss-and-tell exposé or a Tony Blair-esque sales brochure to secure speaking engagements. Instead Brown set out to do what he does best, putting on page deep thought and analysis about the knotty problem of global finances. He did an excellent job of marshaling ideas and sources in the book. His grasp on Asian economics and China in particular is very good. There is a whole section on the Asian crisis of 1998 which is well worth reading on its own.

    In this respect, the Beyond The Crash is a solid piece of work, Brown isn’t as compelling a writer as other economic thinkers that the Labour party has looked to like Will Hutton; but he does a good job at making his ideas and concepts understandable to the average reader.

    Where things go wrong with the book is where Brown tries to humanise his writing. His comments of praise for colleagues and other politicians feels wooden, as if it was written into his book as a postscript. And it is because of this that we see a glimpse of Brown the politician; the polar opposite of his predecessor Tony Blair. Someone who thought at great depth and knew what to do but didn’t have the surface finish.

    If you are prepared to persevere with the book, it is a good read, and is currently for sale in Amazon Marketplace at a massive discount to the cover price. More book reviews here.